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EIOPA Stress Test 2011

EIOPA Stress Test 2011. Press Briefing Frankfurt am Main, 4 July 2011. Topics. Objectives Initial remarks Framework Participation Results Summary Follow up. 2. Objectives. Overall objective of the exercise : Assess the resilience of the EU insurance sector to major shocks

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EIOPA Stress Test 2011

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  1. EIOPA Stress Test 2011 Press Briefing Frankfurt am Main, 4 July 2011

  2. Topics Objectives Initial remarks Framework Participation Results Summary Follow up 2

  3. Objectives Overall objective of the exercise: Assess the resilience of the EU insurance sector to major shocks Understand evolution of capital position of insurers in adverse situations Evaluate the overall stability of the insurance market Regulation requires EIOPA to “initiate and coordinate Union-wide stress tests” 3

  4. Initial remarks What is the EIOPA stress test? • An important supervisory and risk management tool • A test of “what if” scenarios to explore insurance companies vulnerabilities What is the EIOPA stress test not? • A solvency exercise • A second guess of capital requirements 4

  5. Framework • Stress test based on EU future risk-based regulation - Solvency II • Assets and liabilities valued on a market consistent basis • Macroeconomic scenarios provided by the ECB • Shock scenarios developed by EIOPA to highlight risks of particular relevance to insurers 5

  6. Framework Three Scenarios Baseline (severe stress) Adverse (more severe market deterioration in the main macroeconomic variables) Inflation (increase in inflation -> rapid increase interest rates) Risks Market (interest rate, equity, real estate) Credit (spread risk: investment grade, high yield) Insurance (natural catastrophe, pandemic event, reinsurance) 6

  7. Framework Overview of Applied Scenarios 7

  8. Framework Overview of Applied Scenarios - continued 8

  9. Framework Sovereign Bond Stress Basis point increase in yields [1]: [1] Envisaged sovereign risk for EU countries are ECB macroeconomic assumptions whereas EEA countries are assumptions similar to the EBA market risk test for long term maturities. 9

  10. Participation Coverage: 221 (re)insurance groups and companies in the European Union, European Economic Area, Switzerland 58 groups and 71 individual undertakings reported results (aggregated group reporting) Achieved goal of minimum coverage of 50% by premium income per country Represents approximately 60% of the market share 10

  11. Aggregate Results Capital 11

  12. Aggregate Results Aggregate MCR Threshold Impact 12

  13. Results: Drivers Asset: Adverse developments in equity prices, interest rates and sovereign debt markets Liability: Non-life risk more critical Increased claims inflation Natural disasters High sensitivity to reinsurance Range of outcomes depends on the business model employed by insurer (life vs. non-life) 13

  14. Summary Overall the European insurance sector remains robust in the occurrence of major shocks 90% of the groups/undertakings tested continue to comply with the Minimum Capital Requirements even in the most adverse scenario Main vulnerabilities identified: Adverse developments in yield curves and sovereign bond markets Higher than expected rate of severe natural catastrophes combined with limited recourse to reinsurance facilities 14

  15. Follow up EIOPA to continue to monitor the evolution of markets and the main vulnerabilities identified National supervisors to discuss the main findings of the stress test with insurance groups and undertakings Results of stress test to be embedded in the individual plans and strategies to implement Solvency II Insurance undertakings to develop strategies to deal with given scenarios and main vulnerabilities 15

  16. Thank you For additional questions please contact our press office: Sybille Reitz Communications Officer email: press@eiopa.europa.eu phone: +49-69-95111968 Mobile: +49-175-9334210

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